United States Securities and Exchange Commission v. Spiegel, Inc., U.S. District Court for the Northern District of Illinois, Case No. 03C 1685

On March 7, 2003, the U.S. Securities and Exchange Commission ("Commission") filed a civil injunctive action alleging that Spiegel, Inc. ("Spiegel") violated the federal securities laws by withholding material information from the public. Spiegel consented to the entry of a partial final judgment and permanent injunction without admitting or denying the allegations in the Commission's complaint. The complaint alleges that Spiegel withheld the fact that in or about the beginning of 2002, its independent auditor had notified Spiegel that it may not be able to continue as a "going concern." The complaint further alleges that Spiegel's independent auditor later provided a proposed auditor report in or about January or February 2002 which stated that the audit firm had "substantial doubts" about Spiegel's ability to continue as a going concern absent the company addressing certain financial issues.

The complaint alleges that Spiegel decided not to make its required 10-K and 10-Q filings to conceal the "going concern" issue from the public. Instead, the company filed a series of Forms NT (notices of late filing) indicating that Spiegel was not in a position to file because various lending agreements were not in place. According to the complaint, statements made by Spiegel executives confirm that Spiegel chose not to make its required filings to avoid disclosing the "going concern" notice and to avoid the negative "disruptions" that the disclosure of this information would cause. The complaint further alleges that Spiegel failed to disclose its auditor's "going concern" notice in various press releases and public statements that discussed the company's financial condition.

Spiegel consented to the entry of a partial final judgment and order of permanent injunction for violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 13a-1 and 13a-13 promulgated thereunder. In addition, Spiegel consented to the entry of an Order appointing an Independent Examiner to protect the interests of Spiegel's minority shareholders. The Independent Examiner will review Spiegel's financial records and provide the Court with a written report within 120 days of the entry of the order. The report will discuss Spiegel's financial condition and identify any material accounting irregularities. The Independent Examiner may also recommend to the Court interim steps for the protection of Spiegel's minority shareholders. The Court will determine at a later date whether disgorgement, prejudgment interest, civil penalties and other equitable relief are appropriate.